By Dorab E Mistry
In 2008 we saw the commodity boom that saw crude palm oil prices (CPO) rising to 4450 Ringgits in March that year turning to bust very fast. The sub prime criss of USA cast its showdowns on commodity markets much faster. Crude oil prices also climbed down rapidly from US $147 per barrel. However, looking back at the main development of 2008-09, it was the big population in countries like India and China that rescued commodty producers.

Both China and India and indeed most of Asia kept growing at a steady pace of 7 to 8 percent and this kept demand on an even keel.The large Stimulus Packages and low interest rates prevented a repetition of the Great Depression of the 1930s. Stock markets bottomed out in March 2009 and since then we have seen an unprecedented recovery in Equities markets. This has been mirrored by a similar 70 percent recovery in metal prices and a 50 percent recovery on agri commodity prices.

The Palm Oil and indeed the entire Vegetable Oil market had two major strokes of good fortune in 2007-08 and that rescued the trade from any damaging price collapse. Analysts like me who were pessimistic and made bearish forecasts at Palm Oil Conference (POC) in March 2009 had to quickly retract and to change direction.
The saviours of the world vegetable oil industry were INDIA and the link to Bio diesel.

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In early 2008 the Indian government responded to very high world prices by removing the import duty on crude unrefined vegetable oils and reduced the duty on refined oils to 7.5 percent. Then throughout the second half of 2008 and early 2009, with an eye on the upcoming general elections, the Indian government followed an inflation control policy. With the benefit of hindsight, it can be said that this inflation control policy was a masterstroke and proved to be extremely popular with the Indian public. They succeeded in bringing inflation down to Zero. Coupled with other populist measures, the government was re-elected with a strong majority and can justifiably feel vindicated with its approach. The result of NIL import duty in India was a dramatic lowering of prices of edible oil. Let me give you some figures: In March 2008, RBD Olein in wholesale was costing Rupees 62,000 pmt. By October 2008 it had fallen to Rupees 42,000 and by November/December 2008 it was at bottoming out at Rupees 30,000.

Thanks to the strength of the Rupee, today despite a major rally in world prices, RBD Olein is still available at Rupees 38,000 per tonne.

As I have always said, India is a typical Price Elastic market. Lower prices encourage higher per capita consumption. In the oil year which began in November 2008, we saw unprecedented rise in Indian per capita consumption. What is more, India began to import large tonnages of sunflower oil and soya oil which had hitherto been neglected. India stepped up imports of Palm ofcourse. The resourceful Indian Refining industry discovered the joys of double fractionation and gave birth to Super Olein.

The jump in Sunflower oil imports from the Black Sea came as a God Send to the farmers and crushers of Ukraine and Russia. Without Indian demand, Sunflower oil would have traded at a discount to Palm oil for a long time.

During 2008, CPO went through a High Cycle of production. Palm oil stocks in Malaysia peaked at 2.265 million tonnes in November 2008 whilst combined Palm stocks in Malaysia and Indonesia were in excess of 5 million tonnes. Yet prices did not sink to previous lows and held up remarkably thanks to India’s insatiable appetite. In the oil year 2008-09, India’s per capita consumption rose by an amazing 1.4 kilos driven by low prices and total imports rose by 2.35 million tonnes.

In the end it turned out to be a win-win situation for the producers of vegetable oil in Malaysia, Indonesia, Ukraine, Russia, Brazil and Argentina, for the Indian government and the Indian consumer.

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